At Novartis’ Annual General Meeting, held on Tuesday in Basel, Switzerland, shareholders called into question the remuneration of the executive management. Among the most controversial issues were the remuneration of the Chairman/CEO and the combination of functions introduced in 1996 and maintained until now without justification.
Regarding remuneration, critics focalised on the particularly high level of the Chairman/CEO’s remuneration (CHF 44 million in 2006 at market value) and on golden parachutes. Actually, in case of termination of employment following a change of control, 15 members of executive management will be entitled to payments corresponding to several years’ remuneration, which goes against all international best practice rules. While the Board unanimously qualified Novartis’ remunerations to be reasonable and justified by performance, it also announced that Dr. Vasella’s golden parachute will be waived in 2009, at the expiration of his current contract.
Ethos welcomes the removal of severance provisions, but regrets that this measure is not put into effect immediately.
Given that there is no advisory vote on remuneration in Switzerland, Ethos called shareholders to send a signal to the Company by opposing the re-election of Mr. Rudloff, who, in his quality of Chairman of the Remuneration committee, has the responsibility of the remuneration policy and by abstaining from re-electing Dr. Vasella. Finally, Mr Rudloff was re-elected, but his re-election is far from being a plebiscite, as he only received support from 91% of the votes cast. Concerning Dr. Vasella, his re-election was approved by 93.4% of the shareholders.
The controversy surrounding severance payments at Novartis should encourage Swiss companies to refrain from including such clauses in the contracts of executives. It is therefore particularly astonishing to read in the corporate governance section of the 2006 Annual Report of Zurich Financial Services (ZFS) that the CEO, Mr. James Schiro, is entitled to a golden parachute similar to the one of Dr. Vasella, corresponding to almost 5 years of salary plus target cash bonus in case of change of control. Furthermore, a serious concern to investors is that the CEO “will be entitled to an additional gross-up payment if the total termination benefits paid following a change of control become subject to US Excise Tax “ … The General Meeting of ZFS will take place on 3 April 2007 in Zurich.
